Silver Price Inches Up After Fed Raises Interest Rates

Silver prices edged up after the US Federal Reserve announced the first rate hike of the year and signaled at least two more increases for 2018 on Wednesday (March 21).

The Fed lifted the target federal funds rate from 1.5 percent to 1.75 percent, sending the US dollar into a downward spiral and slightly lifting the price of silver.

Despite declining 0.8 percent leading up to the Fed’s announcement, the price of silver rose from US$16.42 per ounce pre-confirmation to reach US$16.56 after the hike was made official.

According to Jim Wyckoff of Kitco, “[u]pside price action in gold and silver markets, post-Federal Open Market Committee, is an example of the “sell-the-rumor, buy-the-fact” scenario that occurs when traders factor into prices expected bearish events before they actually occur.”

He added, “[i]n this case, the selling pressure in gold and silver occurred because traders reckoned a US rate hike would be bearish for the metals. And when the rate hike actually occurred, the metals moved higher because the sellers were already exhausted and had played out their rate-hike hand.”

During the announcement, the Fed did not waver from the previously forecast three hikes for 2018, but did provide a steeper outline for hikes in 2019 and 2020, citing an improving economic outlook.

“The job market remains strong, the economy continues to expand, and inflation appears to be moving toward the FOMC’s 2 percent longer running goal,” Jerome Powell, chairman of the Fed, said in his first press conference since taking on the role.

Fed officials also raised their forecast for 2017 GDP growth from 2.5 percent to 2.7 percent, while increasing the 2018 expectation from 2.1 percent to 2.4 percent.

Similarly, inflation expectations also shifted slightly. Officials announced that this year’s forecast remains at 1.9 percent for both core and headline inflation, while 2019 is predicted bring an increase to 2.1 percent for core personal consumption expenditures. The committee pushed the 2020 level up from 2 percent to 2.1 percent for both core and headline.

Powell, who took over for Janet Yellen in early February, said the central bank continues on a path of gradual rate increases while staying on guard against inflation.

“We are trying to take the middle ground here,” Powell stated, adding that there are no signs that the economy is on the cusp of accelerating inflation.

With the dollar slipping, silver, much like gold, has increased appeal for investors. While gold is favored, silver is also seen as a safe haven in times of market volatility.

Unfortunately for the grey metal, it could not hold on to the gains it made following the Fed hike, and Thursday (March 22) morning saw the precious metal in a steady decline.

As of 11:23 a.m. EST silver was down 0.24 percent, trading at US$16.38 per ounce.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.